Geneva,
10 Dec (Chakravarthi Raghavan) - Eight years after the conclusion of the
Uruguay Round Agreements (and the further work mandated there), and after
seven years of ‘multilateral negotiations’ at the WTO on emergency safeguards
measures in terms of Article X of the General Agreement on Trade in Services
(GATS), the negotiations are now back to square one, namely the desirability
of having a safeguards agreement.

In
providing at a media briefing this assessment of the various GATS bodies
dealing with some of these questions (the others are about negotiations
relating to subsidies in services trade and government procurement), the
Director of the GATS division, Mr. Hamid Mamdouh, said three issues faced
by the trade negotiators are: who is to be protected, and from what, and
what would be the objective of such a safeguards agreement in services.

Mr.
Mamdouh said in so many words that the mandate for multilateral negotiations
in Article X was to go into the ‘question’ of emergency safeguards - namely,
whether one was needed and or whether there should be GATS provisions
on these.

At
the time the GATS was negotiated, said the WTO official (who before joining
the GATT/WTO secretariat was an Egyptian services negotiator), when the
issue had cropped up, the developing countries were not quite sure whether
one was needed and what would be its effect, given the different nature
of the services trade and its modes of supply, and the fact that trade
in services was not like the trade in goods where the goods crossed frontiers
and emergency safeguards had been put into GATT. At the same time, developing
countries at that time did not want to foreclose their option of having
such a provision.

In
terms of mode three (commercial presence), it was not clear who the safeguards
provisions could protect against whom and how. And such a provision for
mode 4 (movement of natural persons) would enable any country to withdraw
easily concessions made, and thus hit the developing countries who seek
concessions in this area.

Apart
from the difficulty of reading into Art. X:1, by mere reference to ‘question’,
that what was provided was the issue of whether there should be emergency
safeguards provisions, and not its scope and conditions, the fact remains
that at the time the GATS was adopted and became part of the Marrakesh
Agreement, and subsequently when further negotiations were held (under
basic telecom, financial services and others), the developing country
negotiators had sold the agreement to their domestic constituencies and
parliaments on the basis that some of these questions were to be negotiated.

In
the context of the new round of GATS negotiations, set in motion in 2000,
several of the developing country governments have also held out to their
domestic lobbies and parliaments, who have become wary of the ‘foreign
presence’ in their services markets and resulting in closure of their
own enterprises, that they could make commitments on the basis of negotiating
emergency safeguards provisions and being able to invoke them if necessary.

This
came out into the public in the aftermath of the 1997 Asian financial
crisis, and then its spread subsequently to Latin America. In Asia, and
particularly in Thailand, Korea and other countries where the previous
unilateral liberalisation of various service sectors had been found to
have been major contributors, if not the only, to their crises, the governments
held out assurances to their domestic constituencies that their interests
would be taken care of in the future through negotiating a GATS emergency
safeguards provision.

However,
the attempts to write ‘emergency safeguards’ provisions for trade in services,
on the lines of the paradigm for such safeguards in the GATT (trade in
goods across frontiers), also ran into difficulties, more so in the complete
absence of any data about ‘trade in services’ that would be needed if
the GATT paradigm were to be followed.

There
is of course nothing in GATS requiring the GATT paradigm be followed.

However,
the trade liberalisation theories formulated in the goods area (some of
which including the benefits of liberalisation to liberalisers, and the
trickle-down theories of benefits by trade producing growth) have been
so blindly advocated and followed for GATS (as now promoted for investments)
even in the absence of any empirical evidence of the benefits or applicability,
that the negotiators (and the WTO trade establishment) perhaps are unable
to get rid of.

And
the scheduling of commitments in services in mode 3 (commercial presence,
an euphemistic term for foreign investments) had been presented as a way
by which countries would be able to provide assurances of stable climate
and government policies to attract their much desired FDI.

If
that were so, it was argued, any emergency safeguards would thus involve
either preventing new entrants and thus ensuring monopoly of existing
foreign service providers, or taking actions against existing ones (and
thus sending a contrary signal to foreign investors).

However,
some recent studies show that the theory that liberalisation, and making
commitments and scheduling them under GATS, results in more FDI have been
disproved.

A
World Bank staff policy research paper by J. Michael Finger and Julio
Nogues (2001), ‘The Unbalanced Uruguay Round Outcome’, has brought out
that in Argentina, the pattern of investment showed that “locking in openness
through WTO commitments under the GATS was not the key to attracting foreign
direct investment... the growth of foreign investment was higher in services
sectors where commercial presence was not bound at the Uruguay Round than
in those in which it was bound...”

Having
found such an empirical evidence and the conclusions flowing from it,
Finger and Nogues, nevertheless found themselves bowing to the World Bank
ideology and putting some propositions, including the benefits of locking
in commitments through WTO scheduling, and thus ensuring there are no
second thoughts or change of policies in future due to political pressures.

However,
it conceded that doing so resulted in ‘unrequited, weakened negotiating
positions of the country in future negotiations’ and that as a result
‘Argentina today is less attractive as a country to exchange concessions
with visavis other developing countries that at the UR services negotiations
were less forthcoming. This is a permanent loss.”

The
crisis that has come out into the public since Dec 2001, and the subsequent
information and data that have become available via other studies, suggest
that the concessions scheduled at the WTO, and the foreign investments
that came in via privatization (financial services, water, telecommunications,
utilities etc) fled the country as fast, or even faster than others, and
that no particular ‘security’ is provided to host countries.

Mamdouh
said that without answers to essential questions relating to whether there
should be a safeguards mechanism in GATS, it is difficult to negotiate
safeguards provisions.

Formally,
the mandate of the working party in GATS looking at this issue has been
extended until next April.

Meanwhile
the formulation of a draft modalities paper, the chairman’s text, is now
being revised.

Two
questions needing to be resolved relate to how credits could be given
to the concessions made by newly acceding countries as part of their accession
protocol, and how it could be done for developing countries who have undertaken
autonomous liberalisation.

The
usual idea (of the secretariat, as well as the majors) based on the traditional
GATT paradigm is for such concessions to be scheduled and committed and
thus credit claimed.

However,
in the light of new evidence (or rather lack of empirical evidence) and
the problems of safeguards etc, raise questions as to how far developing
country trade negotiators should pursue this, and get credit and lock
in their countries, undemocratically, against future change of course
of policy, and thus endanger their own development. – SUNS5252a

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